The contract-electronics business, however, is very competitive and profit margins are generally low. By acquiring its smaller rival, Flextronics aims to boost its income by increasing its economies of scale and eliminating a key competitor.

Mike McNamara, Flextronics' chief executive, said the electronics manufacturing services industry needed a shake up, and that the deal would put his company in a better position in some of the higher-end computing and electronics markets.

"I think the industry is, in general, struggling and needs some consolidation," McNamara said. "Solectron is known more for high-end devices, and we have a better presence in consumer products, so we think this will set us up in some other markets.

Flextronics plans to exchange 0.3450 shares, or a cash payment of $3.89, for each share of Solectron, although no more than 70% of the value of the deal could include stock.

Thomas J. Smach, chief financial officer of Flextronics, said the acquisition could take up to two years to integrate, but the company eventually expects an increase of as much as 15% in earnings per share.

Flextronics also expects to incur restructuring costs after the merger is complete.

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